No. 81-2-251, Appeal from the Order of the Commonwealth Court at No. 2593 C.D. 1978.
Harry J. Rubin, Harrisburg, for appellant.
Vincent J. Dopko, Deputy Atty. Gen., Harrisburg, for appellee.
O'Brien, C. J., and Roberts, Nix, Larsen, Flaherty, McDermott and Hutchinson, JJ.
Appellant, Gilbert Associates, Inc., is a Delaware corporation authorized to do business in Pennsylvania. As a foreign corporation earning taxable income within and without the Commonwealth of Pennsylvania, appellant is required to pay a franchise tax pursuant to a three-factor formula that is designed to apportion the value of its capital stock attributable to its activities in Pennsylvania. Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, § 602(b), 72 P.S. § 7602(b) (Supp. 1982-83), formerly Act of May 16, 1935, P.L. 184, as amended.
Appellant duly filed a franchise tax report for the tax year ending December 31, 1974, see 72 P.S. § 7601, showing a capital stock value of $30,000,000. Its franchise tax liability was computed as $287,145.60 under the three-factor apportionment
formula. Appellant paid the tax and then timely filed a petition for refund with the Board of Finance and Revenue on the ground that it should have been permitted the option of applying the single-factor formula provided by 72 P.S. § 1896 that is accorded to domestic corporations with income taxable both within and without the state in calculating their capital stock tax. Application of the single-factor formula to appellant's 1974 capital stock would have resulted in a tax liability of only $148,024.00.*fn1 The Board of Finance and Revenue denied the petition for refund and, on appeal to the Commonwealth Court, that denial was affirmed. 53 Pa. Commw. 142, 418 A.2d 783 (1980). Appellant's timely exceptions to the Commonwealth Court's order were overruled and this appeal followed.
We hold that, under the Pennsylvania and United States Constitutions, foreign corporations must be afforded an option equivalent to the option to use either the single-factor or three-factor apportionment formula presently afforded only to domestic corporations. Accordingly, we vacate the order of the Commonwealth Court and remand for the entry of an order consistent with this opinion.
Both the capital stock tax imposed on domestic corporations and the franchise tax imposed on foreign corporations are determined by the value of the corporation's taxable capital stock multiplied by the tax rate of 10 mills. 72 P.S. § 7602. Prior to 1967, two distinct methods of calculating taxable capital stock value were applied to domestic and foreign corporations. In the case of domestic corporations, the actual value of capital stock was multiplied by a percentage derived from a single-factor formula. This formula was based on the proportion which the ...